In order to meet the credit risk challenges, Microfinance Providers has decided to develop a robust and reliable information sharing system – “Microfinance-Credit Information Bureau” (MF-CIB), which will provide an avenue for verification of defaulter, credit profile, creditworthiness and any other information of microfinance borrowers.
Sources in Banking Sector told Business Recorder on Thursday that MF-CIB, which is expected to be launched in the third week of this month, will be a landmark achievement for the microfinance sector in Pakistan and a joint initiative of Pakistan Microfinance Network (PMN), UK’s Department for International Department (DFID), Citi-Foundation, and the State Bank of Pakistan (SBP).
It’s a unique public-private partnership model in which the SBP (regulator), PMN and its members (associations and industry players) and Data Check (private sector credit bureau) will be working together to build synergies and provide a much-needed service for the microfinance industry.
Currently, Microfinance Banks (MFBs) regulated by the SBP have access to SBP’s e-CIB, however, a large number of MF clients at approximately 50 percent are being served by non-regulated Microfinance Institutions (MFIs) with no credit history of their customers either at SBP or a private CIB. Both MFBs and MFIs are operating in the same market with good chances of overlapping customers. Thus, the risk of multiple-lending and over-indebtedness exists.
The pilot credit bureau in Lahore will serve as a centralized database to store all past and present credit transactions of an individual who has been declared a defaulter and this system will not only help borrowers facing over-indebtedness but also help Microfinance Providers to have appropriate risk management systems.
The pilot will provide an opportunity for the MFPs to experience the real benefits of a fully functional credit bureau. This will provide a client’s credit profile, contain demographic information to ensure proper identification, include pertinent information relating to the creditworthiness and ability of an applicant to repay newly established credit, such as public record information or other inquiring parties, and provide an avenue for verification or validation of any information which may be questioned or disputed by the client regarding his credit profile.
According to details, this system will increase credit volume and improves access to credit and it can also compensate for the risk control, which is lost in making loan application and approval systems simpler for quicker disbursement, and it could also help identify a loan applicant’s current status regarding outstanding debt with other MFPs.
MF-CIB will not only allow MFPs to screen out multiple borrowers, if policy prohibits multiple loans but also help evaluate the applicant/borrower while providing new/multiple loans.
The pilot credit bureau will contain data only from the 11 MFPs working in the Lahore district. These players comprise three Microfinance Banks (MFBs), five Micro Financial Institution (MFIs), two Rural Support Programmes and & one CFI. The pilot will start reporting “negative” (defaulters) list supplied by these organizations.
Sources said MF-CIB will constitute a significant step towards improved risk management practices and reducing over-indebtedness of low-income clients. Through MF-CIB system, MFPs can broaden the potential lending base, besides evaluation of prompt determination of potential borrower’s creditworthiness and streamline the credit investigation process.
While, borrowers with records of prompt payment will enjoy the high availability of credit, lower borrowing costs, high purchasing power and incentive to build a credit history.
Sources said in recent years, microfinance outreach in Pakistan has grown rapidly, as total number of microfinance borrowers as of December 2009 stand at 1.83 million as compared to only 330,000 in December 2003 due to an enabling policy and regulatory environment provided by the State Bank of Pakistan and the sustained commitment by the government of Pakistan.
Nearly 45 percent of the total micro-credit outreach in the country is in urban areas and a key area in which this urban growth has been concentrated in the district of Lahore. Microfinance outreach in Lahore stood at 195,501 active clients in December 2009. While, Faisalabad 100,497, Bahawalpur 74,587 and Karachi 103,302 active borrowers as of December 2009. Thus, with a national total of 1,826,045 active clients, Lahore accounted for 11 percent of the total microfinance outreach in the country in December 2009.